Allen Matkins/UCLA survey predicts slow office improvement

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An Allen Matkins/UCLA Anderson Forecast found developers are planning or considering office, industrial and multifamily buildings for in or around 2015 here, and across the state.

“This is all about how people feel today about a three-year horizon,” said Jerry Nickelsburg, UCLA Anderson Forecast senior economist.

The report said concerns over the "fiscal cliff" had a negative impact on consumer sentiment about the commercial real estate markets, as it has kept decisions from being made.

“The fear could suppress the developers’ optimism to some degree,” the paper reports, noting that the survey was taken in November of last year when there was a great deal of uncertainty about what would happen next.

The report said while the three-year outlook for office, industrial and multifamily continues to be optimistic, consumer sentiments weren’t always as strong.

Along with the "fiscal cliff" worries, respondents said they were concerned about possible governmental policy changes, and the likely end to the Federal Reserve’s “zero interest” policy in 2015.

“As a result, the expected monetary tightening in 2015 will put a brake on resurgent office markets,” the report said.

Also cited in the report is the generally accepted fact that the amount of space used per office employee has been shrinking in recent years.

“This downsizing effect will partly offset the increased demand for office space induced by the employment growth of the office-intensive sectors,” the report said.

Nevertheless, the survey, which grades sentiment from one to 100, signals that office developers are cautiously optimistic from 2015 on.

San Francisco had the highest office space confidence with a 62 level, followed by Silicon Valley and Orange County at 61, San Diego with a 59 mark, and Los Angeles and the East Bay at 57 and 56, respectively.

“All of these index levels are above 50 and therefore are representative of an optimistic sentiment among developers,” the report states.

Nickelsburg said he expects rental rates “will be firming in San Diego during the next three years, while vacancy rates won’t tighten much.”

The report didn’t have comparative vacancy figures for the fourth quarter, but in the third, San Francisco checked in with a 13.3 percent office vacancy rate, Los Angeles was 15.2 percent, San Diego was 16.8 percent and Orange County was 19 percent vacant.

“Moreover, office markets in San Francisco and Silicon Valley will continue performing better than the other markets,” the report said.

The report warned that concerns over monetary policy, lower space demand, some construction and other factors could actually start to significantly increase the vacancy rates by the end of 2015. Until then, however, the office vacancy rates are projected to decline here and across the state.

As San Diego County doesn’t have a major warehousing base, it wasn’t included in the industrial portion of the Anderson report. The Inland Empire, which features millions of square feet of warehousing, checked in with a 68 composite index. Silicon Valley led in the category with a composite index of 78 as a result of its “resilient high-tech sectors,” the report stated.

The report also didn’t include San Diego in its multifamily section. Nickelsburg said this is the first year for the multifamily report and the survey has yet to develop the infrastructure for the San Diego portion of the report. Nickelsburg did say that is in the works, however.

“In the wake of the aftermath of the housing bubble and financial crisis, Americans are doing three correct things: (1) reducing their private debts, (2) containing their expenditures, and (3) living closer to work, ready to relocate if needed. All of these three things are moving many Americans from single-family to multifamily homes,” the report continued.

Commercial real estate analysis firm Reis reported California apartment vacancy rates have declined to 4.5 percent — the lowest rate since 2002 — in the fourth quarter of 2012 from a peak of 8 percent in the fourth quarter of 2009.

San Diego County also has a roughly 4.5 percent apartment vacancy, as noted by MarketPointe Realty Advisors, that is expected to head lower for some time — even with thousands of units in the works.

The Los Angeles sentiment index was 71, San Francisco was 69 and Silicon Valley was 69.

While each of these markets declined in consumer sentiment by a couple of points over the past year, none of these changes are deemed significant and the level of optimism suggests continued investment in new multifamily housing.

While the report expresses just cautious optimism for the office market, “we forecast that multifamily housing markets will continue to thrive beyond 2015.”